An interesting example of possible tax avoidance has been in the public view recently.

A company based in the Channel Islands provides staff, mostly teachers, to schools on the mainland UK. As they are based off-shore the company does not have to pay employer’s National Insurance contributions. Such organisations are known as ‘umbrella’ companies.

This could add up to many millions of pounds in unpaid tax. For example, for a supply teacher on a daily rate of £160, around £90 per week is not being paid to HMRC in employer’s National Insurance contributions.

HMRC says that the UK-based employment agency through which the workers are supplied, or alternatively the end-user company, such as the school or local education authority, could be treated as the employer and therefore be liable for the unpaid National Insurance contributions.

This means HMRC will have to investigate other public sector employees and reclaim lost revenue.

Consultancy firm Professional Passport, which advises the recruitment industry on tax issues, says a lack of enforcement has encouraged the growth of offshore umbrella companies.

“We don’t need more rules, or different rules, just effective enforcement of the existing rules,” Professional Passport director Crawford Temple commented.

This could be the next big tax avoidance scandal in the UK.

What do you think? If you have any taxation questions about you, your business or your staff call us for advice.